Aerospace giant Boeing (BA – Free Boeing Stock Report) recently released its March-period financial results. For the quarter, share earnings were $0.78, in line with our $0.80 estimate, and more than 11% better than the year-earlier tally. Overall, in our view, it was a solid showing. The issue strengthened in the hours after the earnings release, hitting a 52-week high in the process.

However, there were some headwinds in the quarter. Boeing's commercial aerospace division experienced a 5% decline in revenues, due to lower aircraft deliveries. In addition, margins were hampered because of elevated testing and R&D costs, which mostly stemmed from its new aircraft, the 787 Dreamliner. Although development and production problems have plagued the plane for some time, first deliveries are scheduled for this summer, and total firm orders are currently 835 units from 56 customers. This hefty backlog should support full production for many years.

The company's defense segment performed a little better during the quarter. Revenues advanced modestly and margins widened a bit, year over year, helped by increased deliveries and lower R&D expenses. Also, during the March interim, Boeing inked a large government contract. After a lengthy design and bidding competition with the North American arm of the European Aeronautic Defense & Space Company (EADS), the United States Air Force selected Boeing to build the next generation of aerial refueling tankers. The $35 billion contract calls for Boeing to manufacture 179 tankers, with first deliveries expected by 2017. In our view, additional tanker orders will be placed in the years ahead, since the Air Force will want to eventually replace all 400 of its aging KC-135s, which, on average, have been in service for 50 years. This contract also helped Boeing's total backlog reach $329 billion, up from $321 billion at the close of 2010.

Looking ahead, Boeing's prospects for the remainder of 2011 appear decent. Deliveries of the 787, along with solid defense sales, should help the top line advance at a healthy clip this year, though share net will likely decline due to elevated testing and R&D costs. We continue to expect earnings of $4.15 a share, which is slightly ahead of management's guidance, but 7% below 2010's results.

That said, we anticipate a healthy share-net advance in 2012, helped by increased demand for Boeing's commercial aircraft. We believe that the U.S. economy will continue to improve, and that passenger air travel will increase. Eventually, a number of airlines ought to possess the financial flexibility to replace their aging fleets with new aircraft. In anticipation, Boeing is stepping up production of its popular 737 and 777 models. All told, we estimate that the bottom line will reach $5.30 a share next year, which would be 28% better than our 2011 forecast.

Meantime, Boeing stock has performed well of late, advancing more than 15%, year to date, and outpacing the broader market. In our view, this Dow component offers good risk-adjusted total return potential to 2014-2016. However, some challenges will probably linger for the near term, including concerns over the federal budget and the likelihood of reduced spending on military programs.

About The Company: The Boeing Company is a leading manufacturer of commercial jet aircraft. It also produces fighters (F-15, F/A-18), C-17 cargo carrier, V-22 helicopter, E-3 AWACS, E-4 command post, E-6 submarine communicator, ground transportation systems, develops the space station, and does work on the F-22 (ATF). At 12/31/2010, foreign sales were 41%; R&D, 6.5%. The company has roughly 160,500 employees.

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.